Czech FinMin ups GDP growth, inflation forecasts

...investments and household consumption as the main engines of expansion.

Gross domestic product (GDP) growth is now predicted to be 5.8 percent against a previous forecast of 5.3 percent, the ministry said in a quarterly update of its economic outlook. In 2006, the economy expanded at an annual clip of 6.4 percent.

The ministry's forecast, which the government uses to draft the budget, saw the economy slowing to 5.0 percent in 2008. The previous prediction for next year's growth was 4.9 percent.

"Growth will be driven by an accelerating rise in investment activity and household consumption, the impact of foreign trade results would be lower," the ministry said in a statement.

"Consumer price growth will remain modest," it added.

The ministry raised its forecast for the average inflation rate to 2.3 percent for 2007 from a previous 2.1 percent, and said a planned sales tax rise would boost average inflation to 3.4 percent versus April's estimate of 3.2 percent.

Central bank (CNB) policymakers are expected to tighten policy on Thursday to prevent a consumer spending boom and a weaker crown from fuelling price pressures and driving the year-on-year inflation rate above its target tolerance band.

Investors have fully priced in a 25 basis point rise in the main policy rate to near 5-year high of 3 percent at the CNB's monthly monetary policy meeting on Thursday.

The CNB aims to keep price growth within 1 percentage point either side of its 3 percent goal.

In an April outlook, due for review on Thursday, the central bank had envisaged that GDP will rise 4.9-6.5 percent in 2007 and 3.8-6.8 percent in 2008.

TABLE OF FINMIN FORECASTS.......................[ID:nPRA001404]